Howlett v. Neilson [2005] NSWCA 149

Howlett v. Neilson [2005] NSWCA 149 - NSWCA 2005 case summary — Zoe

[28]

Submissions 20 Mr. Brereton SC for the appellant submitted that error was disclosed in two ways: an error of principle, in that the primary judge failed to take into account or give sufficient weight to the initial contributions by the appellant; and error of principle demonstrated by a manifestly unreasonable result. 21 Mr. Brereton submitted that in this case, as in Pierce v. Pierce [1999] FLC 92-844, the primary judge had adopted a percentage figure which did not properly reflect the disproportion of the initial contributions, without any explanation of how the initial contributions were taken into account when arriving at that figure. He also referred to Wallace v. Stanford (1985) 37 NSWLR 1 at 15, and Powell v. Supresencia (2003) 30 FamLR 473 at [55] to [56]. He pointed out that the primary judge's calculation meant that the respondent would receive $131,000.00 and the appellant would receive $181,000.00 of the $312,000.00 identified for distribution, so that if one assessed the contributions of the parties during the relationship as being roughly equal, the appellant was given the benefit of only $50,000.00 for having contributed $110,000.00 at the commencement of the relationship, as compared with about $1,000.00 by the respondent. 22 Mr. Brereton submitted that, accepting that the correct pool of assets was $320,000.00, the appellant's original contribution should be recognised as contributing about $200,000.00 to that pool, and the balance should then be divided equally, giving $60,000.00 for the respondent, from which her superannuation and Nissan motor vehicle (a total of $8,779.00) should be deducted. The figure of $200,000.00 could be justified either by considering in detail the contribution to the pool of assets provided by the Lake Munmorah property, or alternatively by applying simple interest at the rate of about 4% or 5% to the $110,000.00 initially provided by the appellant. 23 Mr. Quickenden for the respondent submitted that cases such as Wallace and Powell, dealing with money such as inheritances received late in the relationship, involved very different considerations from those concerning initial contributions. In a long relationship, the contributions made during the relationship reduce the significance of initial contributions, and that was appropriately recognised by the primary judge. 24 Mr. Quickenden submitted that Pierce was a different case from the present, because the relationship was ten years rather than seventeen years, and the husband took major responsibility for the care of children who were aged 8 and 9 after the separation. Furthermore, in that case, the Court reached its determination of a 70%/30% split without any explanation of how the initial contributions were taken into account. In the present case, the primary judge's reasons indicate that she did take into account the appellant's initial contributions, and the result does not indicate any error of principle in the way she did this.

[30]

See Lyman v. Lyman (1989) 13 FamLR at 18, Jones v. Grech [2001] NSWCA 208, 27 FamLR 711 at [29]. 26 The first of those steps has been dealt with above, and needs no further discussion. 27 As regards the second and third steps, it is established that, whereas in determining an appropriate order for property settlement under s.79 of the Family Law Act 1975 (Cwth) the Family Court can take into account a wide range of circumstances relevant to the justice of the case, a court in making an order under s.20 of the Act is limited to considering what is just and equitable having regard to the contributions of the parties, in all the circumstances: Evans v. Marmont (1997) 42 NSWLR 70. In the leading judgment in that case, Gleeson CJ and McLelland CJ in Eq. noted that there were at least two major reasons for such difference, and they continued (at 78-79): The first relates to the limited purpose of the New South Wales Act, which will be explained below. The second relates to the essential legal nature of marriage, which is referred to in the Family Law Act (s.43) as an institution, and which is given by that Act its common law meaning as being "the union of a man and woman to the exclusion of all others voluntarily entered into for life". Marriage involves matters of legal status and public commitment. Included in the formal commitment undertaken by people who marry, and reflected in s.72 of the Family Law Act, is a mutual undertaking by each party to maintain the other to the extent of their respective abilities and needs. No such commitment need be involved in a de facto relationship; hence the substantial differences between the way in which the two Acts address the subject of maintenance. 28 Accordingly, since the contributions are so central to the decision, it is particularly important in the reasons for making or refusing an order to identify and evaluate these contributions. 29 This is not a narrow or purely mathematical process. In many cases, it may be appropriate simply to treat the contributions of the parties during the relationship as equal, even though the nature of the contributions are different, although of course there is no presumption of law to that effect, and this assessment depends on a judgment being made that the quality of the contribution of each, in his or her own sphere, deserves to be considered as equal: Mallett v. Mallett (1984) 156 CLR 605. However, that judgment is one that often may be readily reached: Marriage of Ferraro (1992) 16 FamLR 1, Marriage of Clauson (1995) 18 FamLR 693, Jones v. Grech. 30 In addition to the contributions of the parties during a relationship, regard needs also to be had to initial contributions. In cases decided under the Family Law Act, there has developed what is sometimes referred to as "the erosion principle". That principle was considered and explained in Pierce. That case concerned a marriage of eight years, preceded by two years' cohabitation. The assets of the parties were found to be $319,190.00. At the time of marriage, the husband had assets to the value of $226,000.00, while the wife had assets with an estimated value of $11,500.00. The trial judge considered the parties' contributions during cohabitation to be equal. He gave some additional weight to the greater initial contribution of the husband, but said that the relevance of this was diminished due to the length of cohabitation, a little over ten years, and the substantial other contributions. He took into account the husband's contribution in caring for the children since separation, and assessed the contributions of the parties to be 55:45 in favour of the husband. The Full Court allowed an appeal, holding that the trial judge erred in his assessment of the contributions of the parties in that he failed to attach sufficient weight to the greater initial contribution of the husband and his post-separation contribution in caring for the children. The Full Court held that, having regard to the facts as found by the trial judge, the result embodied in his reasons was unreasonable; and that in re-exercising the discretion, the contribution to the parties should be assessed at 70% to the husband and 30% to the wife, with a further 5% adjustment in favour of the husband for factors under s.75(2) of the Family Law Act. 31 In dealing with the so-called "erosion principle", the Full Court (Ellis, Baker and O'Ryan JJ) said this (at [25]-[28]): 25. In addition to referring to a short passage from the judgment of Fogarty J in Money and Money (1994) FLC 92-485, the trial judge noted that the passage was cited with approval by the Full Court (Nicholson CJ, Baker and Tolcon JJ) in Bremner and Bremner (1995) FLC 92-560.

[32]

I think it is legitimate for me to say, as I was a member of the Full Court in Le Steere and Le Steer e (1985) FLC 91-626 that His Honour has read too much into the passage to which he refers and that the term "off-setting contribution" does not necessarily mean 'greater contribution'. It simply reflects the circumstance that the respective contributions of the parties over a long period of marriage 'offset' the significance which might otherwise be attached to a greater initial contribution by one party. This is, in my view, made clear by the Full Court in White and White (1982) FLC 91-246 where that court pointed out that the principal (sic) in Crawford and Crawford (1979) FLC 90-647 is that the original contribution should not be carried forward as a mathematical proportion; ultimately, when it comes to the trial such a contribution is one of a number of factors to be considered. The longer the marriage the more likely it is that there will be later factors of significance and in the ultimate the exercise is to weigh the original contribution with all other, later, factors and those later factors, whether equal or not, may in the circumstances of the individual case reduce the significance of the original contribution". 28. In our opinion it is not so much a matter of erosion of contribution but a question of what weight is to be attached, in all the circumstances, to the initial contribution. It is necessary to weigh the initial contributions by a party with all other relevant contributions of both the husband and the wife. In considering the weight to be attached to the initial contribution, in this case of the husband, regard must be had to the use made by the parties of that contribution. In the present case that use was a substantial contribution to the purchase price of the matrimonial home: See also Campo and Campo (unreported, Full Court (Ellis, Lindenmayer and Finn JJ), Sydney, delivered 19 May 1995 at pages 21 and 22 of the joint judgment) and Zahra and Zahra (unreported, Full Court Sydney, delivered 3 October 1996, per Ellis J. at page 10). 32 In applying these principles to the fact of that case, the Full Court said this ([36]-[40]): 36. The duration of cohabitation was about ten years. The husband had significant assets at about the date of the marriage. He made a significant financial contribution to the purchase of the matrimonial home in 1990, using funds that he had at about the time of the marriage, to the acquisition of which the wife had made little, if any, contribution.

[36]

In our opinion the two additional matters of contribution, which we have identified, favour the husband. Weighing the initial contributions of the husband and his post separation contributions with all other relevant contributions by both the husband and the wife we would attach significant weight to the initial contribution and would assess the respective contributions of the parties within the meaning of paragraphs (a), (b) and (c) of s.79 (4), from the date of the to the date of the hearing, expressed as a percentage of the net value of their assets, as at the date of the hearing, as being 70% by the husband and 30% by the wife. 33 Although this case was relied on by the appellant, it is not a case in which the original contribution was by any means fully reflected in the ultimate order. If one rounds off the value of the assets available for distribution to $320,000.00, one finds that 70% of that figure is $224,000.00 and 30% is $96,000.00, a difference of $128,000.00, whereas the difference between the initial contributions was around $215,000.00. That overall result is not strikingly different from the overall result in this case, where the difference in the initial contributions is of the order of $108,000.00 and the difference in the shares of the ultimate division is around $50,000.00. 34 I have found no clear statement concerning the "erosion principle" in cases under the Property (Relationships) Act. In my opinion, it is by no means clear that it would apply to the same extent as under the Family Law Act, where matters other than contributions can be taken into account, and where the relationship itself involves a public commitment to mutual support for life (as noted in Evans at 78-79). 35 However, it is plainly not the case that the contributions of the parties should be considered as making it just and equitable that there be an order only concerning increases in the value of assets over and above initial contributions. 36 For example, suppose that one has a ten year relationship to which the man brought assets of $5 million and the woman brought no assets, and both make very substantial contributions during the relationship, both financial and non-financial; but that at the end of the relationship, for various reasons, the total assets of the parties are still around $5 million; and that the court assesses the value of the contributions during the relationship as being approximately equal. In those circumstances, the contributions of the woman may make it just and equitable that she receive an order for a substantial sum of money. This is for at least two reasons. This may be a case in which the value of the initial contributions plus the value of the contributions made during the relationship substantially exceed the value of the assets available for distribution; in which case the person making the original contribution cannot expect to receive it back undiminished. Secondly, in my opinion, while s.20 does not authorise the making of orders by reason of perceived needs of a party to a de facto relationship, or by reason of opportunities lost to that party because of the relationship, it does permit the evaluation of contributions having regard not merely to the benefit of the contributions to the relationship and to the property of the parties, but also having regard to the cost of each contribution to the person making it. If, in a relationship involving the financial parameters indicated above, the woman spends the ten years as a homemaker rather than in developing skills and advancing a career, this may indicate that her contribution, although equal to that of the man in terms of benefit to the relationship and to the property of the relationship, is such as to make a substantial order just and equitable because of what it has cost the woman in terms of loss of opportunity for development of skills and advancement of a career. It is for reasons such as those that I believe that the result reached by the Court of Appeal in Dwyer v. Kaljo (1992) 27 NSWLR 728 (substantially increasing the amount awarded by me at first instance) was correct, even though the principle on which the Court then acted was rejected in Evans v. Marmont. 37 However, even if parties are not necessarily entitled to a return of their initial contributions, these contributions should be identified and evaluated. The primary judge did not do that in this case: she noted some evidence and contentions about initial contributions, but apart from finding that the respondent brought minimal assets to the relationship, she made no finding as to the initial contributions of the parties, in particular as to the appellant's initial contribution. In addition, she gave no explanation of how she reached her figure of 42% of the total assets, in particular giving no explanation of how, or to what extent, her assessment of the initial contributions of the parties was taken into account in reaching that figure. I find it a difficult question whether this amounts to an inadequacy of reasons; and also a difficult question as to whether the result, in effect giving the appellant a return of $50,000.00 for his initial contribution of $110,000.00, is so unreasonable as to indicate some error of principle. 38 Before further considering that question, I note that there is one plain error by the primary judge, namely a failure to deduct the value of the Nissan motor vehicle from the figure of about $131,000.00. This error is conceded by the respondent. In my opinion, if the only result of the appeal were to make that adjustment to the figure awarded, the appeal would have to be considered as substantially unsuccessful. 39 In order to reach a conclusion on whether the primary judge has made a more significant error, I find it helpful to set out the way I would resolve this matter, having regard to the principles I have discussed. Doing so involves some mathematical calculations; and while I do not think that these matters can be determined on such mathematical calculations, I think mathematical calculations are of some use in guiding and testing conclusions about what is just and equitable, and also in promoting transparency and consistency in decision-making. 40 As indicated above, the assets of the parties are around $320,000.00. I take the initial contributions to be respectively about $110,000.00 and about $2,000.00. I take the contributions during the relationship, at least in terms of benefit to the relationship and to the property of the relationship, to be equal in value. 41 If, as suggested by Mr. Brereton, one regards the appellant's initial contribution, or perhaps the differential between the contributions, as increased to $200,000.00 by virtue of some allowance for a low rate of interest, the result would be of the order of $51,000.00 to the respondent, as indicated by par.[22] above. In my opinion, an order for that amount would fall well short of what is just and equitable, having regard to the 17-year contribution of the respondent to the relationship and the property of the relationship. 42 If one takes the appellant's initial contribution as $110,00.00, and the respondent's as $2,000.00, and deducts those figures from $320,000.00, this gives $208,000.00. Half that amount would be $104,000.00. If one then adds the respondent's initial contribution of about $2,000.00, and deducts the assets retained by the respondent of $8,779.00, one arrives at a figure to be paid to the respondent which can be rounded off to $97,000.00. This approach would return the initial contributions, without any adjustment to increase them either by CPI indexing or an interest allowance. It would be on the basis that the contributions made during the relationship are roughly equal, which seems an appropriate assumption. It would value the contributions of each party during the 17-year relationship at $104,000.00, and value the contributions to the present asset pool of the original asset contributions at $110,000.00 and $2,000.00 respectively. It would make no allowance for any possible greater cost to the respondent of her contribution; but that was not a matter about which there was significant evidence, and not a matter relied on in submissions. 43 In cases such as this, mathematical precision is not attainable; but in my opinion, this result would be a fair assessment of how the various contributions make up the present asset pool, and of how it would be just and equitable, having regard to the contributions of the parties, to divide that asset pool. 44 Returning to the decision of the primary judge, the result of about $125,000.00 (the awarded figure less an amount for the Nissan motor vehicle) is not so different from the figure I arrived at as itself to justify a conclusion that the judge applied a wrong principle. However, when one has regard to the circumstance that, assuming substantially equal contributions otherwise, the result arrived at in effect gives the appellant only about $50,000.00 as reflecting an initial contribution difference of around $108,000.00 (see par.[21] above), and the circumstance that the primary judge made no finding as to the value of the appellant's contribution, and the circumstance that she gave no explanation of how she arrived at the figure of 42% and, in particular, no explanation of how or to what extent her assessment of the initial contributions was taken into account in reaching that figure, I think there is a deficiency of reasons that warrants appellate intervention. Accordingly, I think it is appropriate for the Court of Appeal to make its own assessment, and my assessment is that indicated above. 45 For those reasons, in my opinion the judgment appealed from should be set aside, the order that should be made is for payment by the appellant to the respondent of $97,000.00, with interest at Supreme Court rates from 11 April 2003. Apparently, something like $65,000.00 has been paid on account, so there will need to be some calculation of interest.

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